SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 0-7704
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1681234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 East 42nd Street, New York, New York 10168
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (2l2) 687-4741
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's Common Stock, par
value $.10 per share, as of May 1, 1996 was 5,301,887.
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
INDEX
Page
Part I. Financial Information
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1996
and 1995 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
(unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 7-8
Part II. Other Information 8
Page 2
<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
MAR. 31 DEC. 31
ASSETS 1996 1995
<S> <C> <C>
Current Assets (UNAUDITED) *
Cash and cash equivalents $1,487,761 $893,744
Marketable securities 5,533,032 5,276,302
Investments being held to maturity 4,797,001 5,245,365
Accounts receivable 1,134,881 1,290,704
Prepaid expenses and other 68,438 14,272
Total current assets 13,021,113 12,720,387
Property and equipment, net 106,646 151,165
Securities acquired in association with licensing
activities 21,299,831 21,551,772
Investments being held to maturity 3,188,996 1,766,993
Other assets 1,340,761 1,162,114
$38,957,347 $37,352,431
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 30,161 232,924
Accrued expenses 375,561 397,907
Amounts payable under service agreements 351,751 356,110
Income taxes payable 1,178,311 464,889
Total current liabilities 1,935,784 1,451,830
Deferred income taxes 6,644,370 6,816,020
Minority interest 39,522 0
Stockholders' Equity
Common stock, $.10 par value 530,189 529,989
Additional paid in capital 8,875,274 8,870,724
Retained earnings 8,123,882 6,700,644
Unrealized gain on securities acquired in
association with licensing activities, net
of taxes 12,572,546 12,713,389
Cumulative translation adjustment 235,780 269,835
Total stockholders' equity 30,337,671 29,084,581
$38,957,347 $37,352,431
<FN>
*Derived from audited financial statements
See accompanying notes to the condensed consolidated financial statements
Page 3
</TABLE>
<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended Mar. 31,
1996 1995
<S> <C> <C>
Revenues
Service revenues $759,088 $980,709
Gains on securities acquired in association
with licensing activities 1,599,358 152,968
Dividends from securities acquired in
association with licensing activities 151,620 0
Sales 119,852 40,943
Total revenues 2,629,918 1,174,620
Costs and Expenses
Service expenses 168,008 269,127
Selling, general and administrative expenses 445,648 387,669
Cost of goods sold 65,160 27,065
Total operating expenses 678,816 683,861
Operating income 1,951,102 490,759
Other income and expenses
Gain on marketable securities transactions 7,913 4,048
Net change in unrealized (losses) gains on
marketable securities (110,349) 81,913
Dividend and interest income 199,250 213,672
Gains (losses) from foreign currency transactions 149 (52,207)
Income before provision for taxes on income
and minority interest 2,048,065 738,185
Provision for taxes on income 630,153 224,951
Income before minority interest 1,417,912 513,234
Minority interest 5,326 0
Net income $1,423,238 $513,234
Earnings per common share
Net income $0.27 $0.10
Weighted average number of shares outstanding 5,301,887 5,337,320
<FN>
See accompanying notes to the condensed consolidated financial statements.
Page 4
</TABLE>
<TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three months ended Mar. 31,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities
Net income $1,423,238 $513,234
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Depreciation and amortization 25,774 19,589
Accretion of premium (discount) on U.S. Treasury
Bills 375 (73,283)
Net gain on sale of securities (1,607,271) (157,016)
Net change in unrealized loss (gain) on
marketable securities 110,349 (81,913)
Deferred income taxes (73,607) 23,950
(Increase) decrease in assets:
Accounts receivable 155,823 (42,540)
Prepaid expenses and other (54,166) (201,869)
Proceeds from sale of marketable securities 470,485 337,603
Purchase of marketable securities (853,428) (345,924)
Other assets (105,762) 21,134
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (225,109) (45,641)
Amounts payable under service agreements (4,359) (184,298)
Income taxes payable 713,422 0
Net cash used in operating activities (24,236) (216,974)
Cash Flows From Investing Activities
Proceeds from sales of securities acquired in
association with licensing activities 1,637,889 173,386
Proceeds from maturity of investments being
held to maturity 230,585 4,430,000
Purchase of investments being held to maturity (1,199,594) (9,269,087)
Additions to property and equipment (21,332) 0
Net cash provided by (used in) investing
activities 647,558 (4,665,701)
Cash Flows From Financing Activities
Proceeds from exercise of stock options 4,750 0
Acquisition and retirement of common stock 0 (142,500)
Net cash provided by (used in) financing activities 4,750 (142,500) 0
Effect of exchange rate changes on cash (34,055) 30,160
Net increase (decrease) in cash and cash equivalents 594,017 (4,995,015)
Cash and cash equivalents at beginning of period 893,744 5,641,885
Cash and cash equivalents at end of period $1,487,761 $646,870
<FN>
See accompanying notes to the condensed consolidated financial statements.
Page 5
</TABLE>
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Notes to Condensed Consolidated Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (all of which were
normal recurring adjustments) necessary to present fairly the consolidated
financial position of REFAC Technology Development Corporation (the "Company")
at March 31, 1996 and December 31, 1995, the results of its operations and its
cash flows for the three month interim period presented.
The accounting policies followed by the Company are set forth in Note l
to the Company's consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, which is
incorporated herein by reference.
2. The results of operations for the quarter ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
3. In accordance with SFAS No. 115, the Company categorizes and
accounts for its investment holdings as follows:
Trading securities are securities bought and held for the purpose
of selling them in the near term. Unrealized gains and losses are
included in current period earnings. The Company's investment in
marketable securities (principally holdings in preferred stocks and
government agency bonds) falls into this category.
Held to maturity securities are measured at amortized cost. This
categorization is permitted only if the Company has the positive
intent and ability to hold these securities to maturity. The
Company's investments in U.S. Treasury Bills and Notes fall into
this category.
Available for sale securities are securities which do not qualify
as either held to maturity or trading securities. Unrealized gains
and losses are reported as a separate component of stockholders'
equity, net of applicable deferred income taxes on such unrealized
gains and losses at current income tax rates. The Company's
investments in securities acquired in association with licensing
activities fall into this category. Such securities at March 31,
1996 consisted of 332,842 shares of Three-Five Systems, Inc. (which
trades on the New York Stock Exchange under the symbol TFS) and
399,000 shares of KeyCorp (which trades on the NYSE under the symbol
KEY) and 49,750 shares of Patlex Corporation (which trades on the
NASDAQ under the symbol PTLX).
Page 6
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Conditions and Results of Operations
Results of Operations
Total operating revenues increased $1,455,000 for the three months ended
March 31, 1996 as compared to the corresponding period in 1995. Service
revenue accounted for 29% and 83% of operating revenues for the three months
ended March 31, 1996 and 1995, respectively. Investment income (gains and
dividends) from securities acquired in association with licensing activities
accounted for 67% and 13% of operating revenues for the three months ended March
31, 1996 and 1995, respectively. The increase in investment income from
securities acquired in association with licensing activities is principally due
to the increase in revenues from shares sold in the current period versus the
corresponding period of 1995. As deemed in the Company's interest and as
future market conditions permit, the Company intends from time to time to sell
part of the portfolio of such securities. The increase in sales, which totalled
4% of total revenues in the first three months of 1996 and 1995, is principally
related to sales of product by Advanced Resin Technology, Inc. ("ART"). In
December 1995, the Company acquired a controlling interest in ART, a
manufacturer of a patented line of thermoplastic polyurethane hot melt adhesives
and elastomers.
Service revenues decrease $222,000 for the three months ended March 31,
1996 from the corresponding period in 1995. The changes largely resulted from
a decrease of non-recurring revenues which are recognized upon the completion of
new, single-payment license agreements. Recurring service revenues from
established licensing relationships, which represented 100% of service revenues
for the three months ended March 31, 1996, as compared to 87% in the same period
of 1995, have remained relatively stable as compared to the corresponding period
in 1995.
Service expenses represents payments to licensors under contractually
stipulated terms, and hence tend to increase or decrease as a function of
service revenues. Also included in service expenses are various other costs
directly related to the development, maintenance, and enforcement of patent and
licensing programs, notably legal and other external professional fees, and
costs associated with patent research, upkeep and amortization. Service
expenses as a percentage of service revenues decreased from 27% in the three
month period of 1995 to 22% in the corresponding period of the current year.
The decrease in this ratio is attributable to a decrease in non-recurring
recurring licensing revenue.
Selling, general and administrative expenses increased $58,000 for the
three month period of 1996 versus comparable period of 1995. this increase is
principally due to the recent acquisition of an 87% interest in ART. The
selling, general and administrative expenses of ART totalled approximately
$91,000 for the first quarter of 1996.
Page 7
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Management's Discussion and Analysis
of Financial Condition and Results of Operation
(Continued)
For the three months ended MArch 31, 1996, the Company had losses on its
marketable securities of $102,000 consisting of realized gains of $8,000 and
unrealized losses of $110,000 as compared to realized gains of $4,000 and
unrealized gains of $82,000 for the corresponding period of 1995. The loss in
1996 was principally attributable to the adverse impact that rising interest
rates had on the value of the Company's investment in preferred stocks and
governmental agency bonds.
Dividends and interest income decrease by $14,000 for the three months
ended March 31, 1996 from the corresponding period in 1995. Dividend and
interest income consist of investment income from the Company's portfolio of
marketable securities. The year-to-date decrease in dividends and interest
income relates to the amount of income producing assets owned by the Company
at March 31, of the respective years.
The Company's income from technology transfer operations has not in the
past been materially affected by inflation. Likewise, while currency
fluctuations can influence service revenues, the diversity of foreign income
sources tends to offset individual changes in currency valuations.
Liquidity and Capital Resources
The Company's liquidity position at March 31, 1996, included cash and cash
equivalents of approximately $1,488,000 and publicly-traded securities and U.S.
Treasury Bills and Notes having a market value of over $13,519,000. In addition
the Company's long-term investment portfolio had a market value of approximately
$21,300,000 at March 31, 1996.
On March 31, 1996, the Company had no lon-term debt. Other than the
commitment under the lease for its principal office, the Company has no
significant commitments. The Company believes its liquidity position is more
than adequate to meet all current and projected financial needs.
Part II Other Information
Item 6. Exhibit and Reports on Form 8-K
(a) See exhibit index attached hereto.
(b) Reports on Form 8-K filed during the quarter: None
Page 8
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REFAC Technology Development Corporation
May 15, 1996 Eugene M. Lang
E.M. Lang, Chairman and Chief Executive
Officer
May 15, 1996 Robert Rescigno
Robert Rescigno, Controller and Principal
Accounting and Financial Officer
Page 9
EXHIBIT INDEX
Exhibit Page
No. No.
28 Note 1 to the Company's Consolidated financial
statements contained in the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995 is incorporated herein by
reference.
Page 10
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<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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